Performance Measures Flashcards
Financial / Customer / Internal Business Processes / Learning and Growth
Performance Measurement
To measure Performance.
Performance Measurement
Diagrams of Strategic Cause and Effect Relationships.
Performance Measurement
A plan to achieve goals.
Performance Measurement
Return on Investment Residual Income Spread Economic Value Added Free Cash Flow
Performance Measurement
ROI : Return / Investment
Example: You Invest $100 to buy a machine that generates $60 in Operating Income
$60 / $100 : 60% ROI
Performance Measurement
Operating Income - (Required Rate of Return x Invested Capital) : Residual Income
Performance Measurement
RROR is also called ‘Cost of Capital’
Performance Measurement
Cost of Capital is the weighted average of the interest rates you pay for your Capital.
Includes Debt and the Rate of Return your Equity Shareholders expect
Example: 45% of your Capital is supported by debt and has an interest rate of 9%. 55% of your Capital is supported by equity and shareholders expect a ROR of 12%
Your Cost of Capital is: (.45 x .09) + (.55 x .12) : 10.65%
Performance Measurement
Spread : ROI - Cost of Capital
Performance Measurement
Investments should exceed costs- with an emphasis on stockholder value.
Economic Value Added : Operating Income After Tax - (Net Assets x WACC)
Performance Measurement
Operating Income After Tax \+ Depreciation & Amortization - Capital Expenditures - Change in Net Working Capital \: Free Cash Flow
Performance Measurement
It measures a product versus its quality goal.
Performance Measurement
Sales / Average Assets
Performance Measurement
Can the company pay their short-term liabilities?
Current Ratio : Current Assets / Current Liabilities
Performance Measurement
